Buy on dips

In todays musing you can find the following topics

Market Overview

Banks and Banksters, musings about Wells Fargo. Is the result really as good as they would like us to believe?

Consumption, many store chains with considerably fall in sales

Economy, some musings from Bill Bonner

Gold, buy on dips and an excellent essay from Chris Powell about Market manipulations

Equities, sucker rally a chance to start to unload?

Commodities, Water, Mexico City and other cities are running out of water




Does it feel like Christmas?

Before going into the topics let’s have the weekly overview
The S&P500 gained 1.6% (down 5.2% y-t-d), and the Dow added 0.8% (down 7.9%). The broader market rally continued. The S&P400 Mid-Caps jumped 2.2% (down 0.3%), and the small cap Russell 2000 rose 2.6% (down 6.3%). The Morgan Stanley Retail index surged 3.4%, increasing y-t-d gains to a noteworthy 22.8%. The Morgan Stanley Cyclicals increased 3.7% (down 5.1%), and the Morgan Stanley Consumer index gained 0.5% (down 5.9%). The Transports added 0.4% (down 15.5%), while the Utilities slipped 0.6% (down 11.1%). The Nasdaq100 increased 1.8%, increasing y-t-d gains to 10.6%. The Morgan Stanley High Tech index rose 1.1% (up 17.7%), the Semiconductors added 1.3% (up 19.9%), and the InteractiveWeek Internet index jumped 2.3% (up 24.8%). The Biotechs increased 0.4% (down 3.0%). The Broker/Dealers gained 2.1% (up 11.2%), and the Banks surged 8.9% (down 23.7%). With Bullion $14, the HUI Gold index dropped 4.6% (down 2.8%).






Banks and Banksters

Well dear reader if it does not feel like Christmas it certainly might look as a miracle. What the hell am I talking about? Well I am talking about Wells Fargo. Wells Fargo was not responsible for the Christmas gift but kind of something similar, a kind of Easter gift. Well just before Easter they came out with news of a terrific result. An expected 3 billion USD loss converted miracously into a USD 3 billion profit. Wow, not bad at all. But wait, is it really so great? Might the miracle have something to do with the new FASB rule? Remember dear reader, after all the scandal and cries of outrage Congress agreed a couple of days ago to let the banks put their own value on the worthless assets they hold in there portfolios. The banks claimed it was unfair to let the market determine the value so they will now be allowed to set a price, just like they used to do with their mathematical models that got us into all this trouble in the first place. As banks now can grossly inflate the value of these assets, it might very well be the case that this is the reason why Wells Fargo’s balance sheet improved miracously. The more things change, the more they stay the same. Now banks will grossly inflate the value of these assets, this will “improve” their balance sheets, and they will soon be profitable again. My guess is that we will see more from their competitors which might help the stock market to move up some more. More on the stock market later



Before writing more about the stock market I would like to stay a moment with the Wells Fargo positive news. Following an excellent essay about this topic
Wells Fargo: $865 Billion in Loans. Time to Really Examine the Wells Fargo $3 Billion First Quarter Expected Bounce. $57 billion in Pick-a-Pay Loans Still Waiting.
It was rather stunning to see the market react so positively to a bank that has received $25 billion in taxpayer money turn a profit of $3 billion in the first quarter, which also included the FASB mark to market rule adjustment. What many people have seemed to forget in the last few weeks is that Wells Fargo in their infinite wisdom took over Wachovia. Wachovia for many of those who do not know swallowed uber toxic mortgage dealer Golden West that ultimately led to the demise of the bank because of mortgage indigestion. So Wachoiva was swallowed up by Wells Fargo in a shotgun marriage similar to JP Morgan Chase taking the entirety of Washington Mutual.
Read more
http://www.mybudget360.com/wells-fargo-865-billion-in-loans-time-to-really-examine-the-wells-fargo-3-billion-first-quarter-expected-bounce-57-billion-in-pick-a-pay-loans-still-waiting/

Well dear reader as mentioned before my guess is that we will see a lot more (manufactured ) good news about the financial institutions. My recommendation is to take this news with the necessary caution. My opinion is clear and I do not see any reason why I should change yet my opinion. The big banks are in my opinion basically all already bankrupt and are only kept alive with life support in the form of cash infusions. All the circus with now positive news does not change anything.
Well some more of positive news came out because of the bank stress tests done recently. Following the comment from “naked capitalism”
We said from the beginning the stress tests were a complete sham. Just look at the numbers. 200 examiners for 19 banks? When Citi nearly went under in the early 1990s, it took 160 examiners to go over its US commercial real estate portfolio (and even then then the bodies were deployed against dodgy deals in Texas and the Southwest). This is a garbage in, garbage out exercise. The banks used their own risk models to make the assessment, for instance, the very same risk models that caused this mess. And there was no examination of the underlying loan files.
The complete piece of information you can find on
http://www.nakedcapitalism.com/2009/04/quelle-surprise-bank-stress-tests.html

GE
The Earnings Bomb Inside GE Capital
GE (GE) gave a presentation a few weeks ago designed to calm investors' fears that the company's huge financial services division, GE Capital, is just another Bear Stearns with a friendly logo. The presentation helped, and GE's stock has recovered some of its horrific losses. As of this morning, it's back above $11 (down from $40+ 18 months ago)
http://www.businessinsider.com/henry-blodget-living-on-planet-ge-2009-4


Consumption

Well dear reader reading the following information pieces I ask myself where will the growth come from?
Abercrombie & Fitch March same-store sales down 34%
http://www.marketwatch.com/news/story/abercrombie--fitch-march-same-store/story.aspx?guid=%7BF8ADF32A%2D4A70%2D4C13%2DA657%2DCE1B8B27848B%7D&dist=msr_8

Kohl's same-store sales down 4.3%
http://www.marketwatch.com/news/story/kohls-same-store-sales-down-43/story.aspx?guid=%7B35B6D024%2DC260%2D4FCE%2DA833%2D0319D385E4FA%7D&dist=msr_8

Nordstrom March same-store sales down 13.5%
http://www.marketwatch.com/news/story/nordstrom-march-same-store-sales-down/story.aspx?guid=%7BD6A7523B%2DDAA9%2D4A1D%2D9A0D%2DF1BEA9D930F9%7D&dist=msr_1

Wal-Mart Sales Are Short of Retail Metrics Estimate
http://bloomberg.com/apps/news?pid=20601087&sid=aI0_OFz22Ycs&refer=home
Well dear reader of course one can argue about the correct accounting rules and the way the loans should be accounted. However you look at it, I think that one can say “When there are no transactions, the bid IS the market!".


Economy

Following some musings from Bill Bonner from the Daily Reckoning
When the Spanish Galleons came back from the New World with cargoes of gold and silver coins, the Spaniards thought they'd hit the jackpot. All of a sudden, Iberia had plenty of money. Historians report that the Spanish neglected their fields and their manufactures; now they had easy money to spend. Prices rose quickly. Then, when the treasure ships stopped coming, the Spanish were broke. Spain - and Portugal too - went into a decline that lasted four centuries.

In the late 1990s, America got in the habit of getting shiploads of stuff from Asia - and paying for it only with pieces of green paper. Pretty soon, Americans too neglected their own factories - though not their fields. Let the Asians sweat, they said. We'll think!

Not much serious thinking has taken place in the United States of America for the last 20 years. Instead, people preferred comforting illusions and conceited claptrap. We have the 'strongest, most dynamic economy the world had ever seen,' they congratulated themselves.

Of course, you don't need to think - not when you ship is coming in. But now that the ship is sinking you'd expect people would put on their life jackets and their thinking caps. Nope. Now they look to the government for the free money. Yesterday's news told us that Congress is now spending away $1 billion per hour.

Reading the piece from daily reckoning the following headline does not come as a surprise
US budget gap soars in first half of fiscal 2009

WASHINGTON, April 10 (Reuters) - The United States posted a record $956.8 billion budget deficit for the first half of fiscal 2009, more than triple the year-ago shortfall, as spending on financial and economic rescue programs ramped up, the Treasury Department said on Friday.
For March, the government recorded a deficit of $192.27 billion, a record for the month and nearly four times the year-ago gap of $48.21 billion.
March budget outlays ballooned to $321.23 billion, including $46 billion spent to inject capital into government-controlled housing finance companies Fannie Mae and Freddie Mac and $10.6 billion for federally subsidized unemployment benefits. The total outlays compared with $227.02 billion for March 2008.
The March outlays would have been even larger, but the federal government shifted about $15 billion of benefit payments into February because March 1 was a Sunday.
March receipts fell sharply as a rapidly deteriorating economy dried up tax revenue from individuals and businesses. Receipts for the month fell 28 percent to $128.96 billion from $178.82 billion a year earlier.
In addition to the capital support for Fannie and Freddie, the government purchased $17.38 billion of mortgage-backed securities from government-sponsored enterprises, marking a total of $119.2 billion for the first half of fiscal 2009, which started on October 1.



April 7 - Bloomberg (John Glover): "Thirty-five companies defaulted in March, the highest number in a single month since the Great Depression, according to Moody's... The rate at which speculative-grade corporate borrowers worldwide failed to meet their obligations rose to 7% from 4.1% at the end of last year... So far this year, 79 companies rated by Moody's have defaulted..."

Following some more from Bill Bonner
It's amazing how much credibility some people have. Seems almost infinite. No matter how bad their advice...or how little they understand...people still ask their opinions.

Or, to put it another way...it's amazing what most people will believe.

You'd think - after $50 trillion in losses - that people would be careful whom they listened to. Who would take Alan Greenspan's thoughts seriously, for example? Yet, the newspapers still report his remarks with a straight face.

And what about all the economists who claimed that since the "U.S. has the world's most flexible, dynamic economy" you couldn't go wrong buying U.S. stocks? And what about the market timers who urged investors to buy "bargains" when the Dow was only 10% below its peak? And how about the regulators - such as Tim Geithner - who completely missed the biggest Ponzi scheme of all time, taking place right under their noses? And the economists who thought derivative debt made the financial world safer by "distributing risk more widely?" And those, such as Hank Paulson, who thought the sub-prime crisis was "contained" at $100 billion in losses? (Current cost of the bailouts - $12.8 TRILLION!)

As our friend Nicholas Taleb says, it's as if these guys had wrecked a school bus - while they were driving drunk.

But instead of putting them in jail - they're given a new school bus to drive!
Well Kevin Phillips has his remarks to what Bonner says
"Phillips calls Paulson a Wall Street insider who was looking out for his own, and Bernanke an academic misguidedly trying to refight the 1930s Great Depression. Together they formed the wrong team at the wrong time whose ad hoc approach threw away hundreds of billions of dollars and more than doubled the Fed's balance sheet, he says.

"What you're seeing Bernanke do is he's trying to create a bailout reflationary bubble, which he can't describe as a bubble, just as Greenspan couldn't describe the housing mortgage bubble as a bubble. What we're seeing by Bernanke is a covert attempt to rebubble,"


Gold

Well dear reader before going into very important information from Chris Powell, I’d like to remind you that I strongly believe that gold is the investment to hold. Personally I believe that we are in a bull market that will last a couple of years. As mentioned several times, I am convinced that we will see the value of the Dow Jones Index being equal to the price of one ounce of gold. Seasoned investors say clearly that one should buy on dips in a bull market. Being in a bull market in precious metals, last weeks action by the central banks and their info war that brought gold price down considerably brought us once more an excellent opportunity to buy on dips. Well dear reader my guess is that we will brake through the USD 1,000 mark soon and that we will in a couple of months look back and say that 880 was really an excellent price to buy or those who like to wait might regret it.



Chris Powell: There are no markets anymore, just interventions

Submitted by cpowell on Sat, 2008-04-19 05:18. Section: Essays
Remarks by Chris Powell, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. GATA Goes to Washington -- Anybody Seen Our Gold?
Hyatt Regency Crystal City Hotel, Arlington, Virginia Friday, April 18, 2008

Groucho Marx made a small fortune in vaudeville and then lost it all in the stock market crash of 1929. His sense of humor was no help to him then. One day in the early 1930s he was sitting in a bar with his friend Morrie, and Morrie was trying to console him.
"Yes," Morrie told Groucho, "we've lost a lot of money and it hurts, but we’ve still got our health and our lives ahead of us, and some people don’t even have that. Take my cousin Fred. He's much worse off than we are but he’s pressing on as best he can. Fred lost his leg in a carriage accident when he was 5. His parents were killed in a tenement fire when he was 12. His wife ran off with his best friend when he was 27. And then he had diabetes at 29."
Groucho was not to be consoled; he had lost too much money in the crash. He snarled back at Morrie: "Diabetes at 29? That's nothing. I had Radio at 104."

We investors in the precious metals have taken some hard blows lately, if not quite as hard as the blows taken by, say, investors in Bear Stearns. But we've taken such blows regularly over the last decade and still have come out ahead, so we should be able to put things in perspective.

It may be a little easier for those of us in the Gold Anti-Trust Action Committee. The committee was founded in 1999 to expose manipulation of the gold market and the rigging of related markets. From the start we were ridiculed as "conspiracy nuts." But hardly a day goes by now without evidence of official market rigging showing up in even the establishment news media.

We in GATA haven't minded the "nuts" part that much. But we're actually public record nuts.
For the scheme to suppress the price of gold is increasingly a matter of ordinary public record.
It was a matter of public record in January 1995, when the Federal Reserve's general counsel, J. Virgil Mattingly, told the Federal Open Market Committee, according to the committee's minutes, that the U.S. Treasury Department's Exchange Stabilization Fund had undertaken "gold swaps." Those minutes are still posted at the Fed's Internet site:


It was a matter of public record in July 1998, six months before GATA was formed, when Federal Reserve Chairman Alan Greenspan told Congress: "Central banks stand ready to lease gold in increasing quantities should the price rise." That is, Greenspan himself contradicted the usual central bank explanation for leasing gold -- supposedly to earn a little interest on a dead asset -- and admitted that gold leasing was all about suppressing the price. Greenspan's admission is still posted at the Fed’s Internet site:
http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm

Incidentally, while we gold bugs love to cite Greenspan's testimony from July 1998 because of its reference to gold leasing, that testimony was mainly about something else, for which it is far more important today. For with that testimony Greenspan persuaded Congress not to regulate the sort of financial derivatives that lately have devastated the world financial system.

The Washington Agreement on Gold, made by the European central banks in 1999, was another admission -- no, a proclamation that central banks were working together to control the gold price. The central banks in the Washington Agreement claimed that, by restricting their gold sales and leasing, they meant to prevent the gold price from falling too hard. But even if you believed that explanation, it was still collusive intervention in the gold market. You can find the Washington Agreement at the World Gold Council's Internet site:
http://www.reserveasset.gold.org/central_bank_agreements/cbga1/

Barrick Gold, then the largest gold-mining company in the world, confessed to the gold price suppression scheme in U.S. District Court in New Orleans on February 28, 2003. On that date Barrick filed a motion to
dismiss Blanchard & Co.'s anti-trust lawsuit against Barrick and its bullion banker, JPMorganChase, for rigging the gold market.
Barrick's motion said that in borrowing gold from central banks and selling it, the company had become the agent of the central banks in the gold market, and, as the agent of the central banks, Barrick should share their sovereign immunity and be exempt from suit. Barrick’s confession to the gold price suppression scheme is posted here:
http://www.gata.org/files/BarrickConfessionMotionToDismiss.pdf

The Reserve Bank of Australia confessed to the gold price suppression scheme in its annual report for 2003. "Foreign currency reserve assets and gold," the RBA's report said, "are held primarily to support intervention in the foreign exchange market." The RBA's report is still posted on the Internet at the central bank's site:


Maybe the most brazen admission of the Western central bank scheme to suppress the gold price was made by the head of the monetary and economic department of the Bank for International Settlements, William S. White, in a speech to a BIS conference in Basel, Switzerland, in June 2005.

There are five main purposes of central bank cooperation, White announced, and one of them is "the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful." White's speech is posted at GATA's Internet site here:
http://www.gata.org/node/4279

Last October the editor of the Freemarket Gold & Money Report and the founder of GoldMoney, James Turk, a longtime consultant to GATA who will be speaking at this conference, revealed some U.S. Treasury Department reports showing that since May last year the U.S. gold reserve has been mobilized for leasing to suppress the gold price. Those records are available on GATA's Internet site:
http://www.gata.org/node/5637

In complaining about the manipulation of the gold market, GATA has not been called "conspiracy nuts" by everyone. We have gained a good deal of institutional support over the years.

First came Sprott Asset Management in Toronto, our main sponsor for this conference. In 2004 Sprott issued a comprehensive report supporting GATA. The report was written by this conference's keynote speaker, Sprott's chief investment strategist, John Embry, and his assistant, Andrew Hepburn, and was titled "Not Free, Not Fair -- the Long-Term Manipulation of the Gold Price." It remains available at the Sprott Internet site here:
http://www.sprott.com/pdf/pressrelease/press_release_not_free_not_fair.pdf


Then in 2006 the Cheuvreux brokerage house of Credit Agricole, the major French bank, issued its own report confirming GATA's findings of manipulation in the gold market. The Cheuvreux report was titled "Remonetization of Gold: Start Hoarding," and you can find it at GATA's Internet site:
http://www.gata.org/files/CheuvreuxGoldReport.pdf

And in September last year Citigroup -- yes, Citigroup, a pillar of the American financial establishment -- joined the conspiracy nuts. It published a report titled "Gold: Riding the Reflationary Rescue," written by its analysts John H. Hill and Graham Wark, declaring: "Gold undoubtedly faced headwinds this year from resurgent central bank selling, which was clearly timed to cap the gold price." You can find the Citigroup report at GATA's Internet site here:
http://www.gata.org/files/CitigroupGoldReport092107.pdf



Even those authorities who don't want to run afoul of government institutions that with a few computer keystrokes can create virtually infinite amounts of money may have to admit the opportunity for central banks to manipulate the gold market. For it is widely acknowledged that annual world gold production is about 2,400 tonnes, that annual net world gold demand is about 3,400 tonnes, that gold production is falling as demand is rising, and that the thousand-tonne gap between production and net demand is being filled mainly by central bank dishoarding and leasing. What do you suppose the gold price would be if central banks were not supplying more than a quarter of annual demand?

Just prior to the smashing down of the gold price in March, the gold lease rate turned negative. That is, the usual miniscule interest rate charged on borrowed gold was not enough incentive for bullion banks to keep borrowing gold from central banks and keep selling it into the market. No, central banks began to pay bullion banks to short gold. (Remember this the next time you hear assertions that central banks lease gold to make money from a "dead asset.")

So a bigger question today is not whether central banks and their agents manipulate the gold market -- even Citigroup sees it now -- but why this should ever have been a mystery or a controversy in the first place. For the manipulation of the gold market by central banks is only the most basic economic history.
That's what the gold standard was about -- governments fixing the price of gold to a precise value in their currencies, a price at which governments would exchange their currencies for gold, currencies that were backed by gold.

Though the gold standard was abandoned amid the Great Depression, that was not the end of government efforts to control the gold price. The United States and Great Britain attempted to hold the price at $35 per ounce throughout the 1960s in a public arrangement of dishoarding that came to be known as the London Gold Pool. The London Gold Pool was overwhelmed by demand and was shut down abruptly in April 1968.

Since then there have been sporadic selling of gold by central banks and, increasingly, leasing of gold by central banks, even as the gold price has continued to rise.
That the London Gold Pool was a scheme to manipulate the gold price is not denied even as the purposes of the more recent selling and leasing by central banks may be disputed.

But it is all much bigger than that. Gold is only part of it.

For market intervention is exactly why central banking was invented. Intervening in markets is what central banks do. They have no other purpose.

Central banks admit intervening daily, even hourly, in the currency markets, buying and selling their own currencies and those of other governments to maintain exchange rates at what they consider politically desirable levels. Central banks admit doing the same in the government bond markets. Now there is even evidence that the Federal Reserve and Treasury Department have been intervening frequently in the U.S. stock markets since the crash of 1987.

You don't have to settle for rumors about the "Plunge Protection Team," also known as the President's Working Group on Financial Markets. Again you can just look at the public record.
The Federal Reserve injects money into the stock and bond markets every day, on the public record, through what are called repurchase agreements the Fed makes with the major New York financial houses, its so-called primary dealers. The financial houses become the Fed's agents in directing that money into the markets.

As of this week the money that has been deployed into the stock, bond, and derivatives markets by the Fed through the repo pool stood at about $360 billion. Last October the repo pool was only $160 billion. In only six months the money in the repo pool has far more than doubled.

Three hundred sixty billion dollars are plenty for pushing all sorts of markets around or propping them up. Indeed, market manipulation is the only purpose of the repo pool.

Now central banks are trying to scare the gold market with the plan of the International Monetary Fund to sell 400 tonnes of gold in the name of rotating into supposedly superior investments, like government bonds -- as if anything else with so little risk could match gold's increase in value in dollar terms, 300 percent over the last 10 years, an average of 30 percent per year. But if you look closely, you will find that the IMF says its gold sales are only to substitute for any unfilled quotas in the Western central bank agreement on gold sales, the Washington Agreement, and so are not to add to the annual dishoarding of official-sector gold. And if you look even closer, you may begin to wonder whether the IMF even has any gold at all.

This month I wrote to the managing director of the IMF, Dominque Strauss-Kahn, with five questions about the IMF's gold. I copied the letter to the IMF's press office by e-mail, and quickly began to get some answers from one of its press officers, Conny Lotze.

My first question was: "Your Internet site says the IMF holds 3,217 metric tons of gold 'at designated depositories.' Which depositories are these?"

Conny Lotze of the IMF replied, but not specifically. She wrote: "The fund's gold is distributed across a number of official depositories," noting that the IMF's rules designate the United States, Britain, France, and India as IMF depositories.

My second question was: "If you'd prefer not to identify the depositories for security reasons, could you at least identify the national and private custodians of the IMF's gold and the amounts of IMF gold held by each?"

Conny Lotze replied, again not very specifically: "All of the designated depositories are official."
My third question was: "Is the IMF's gold at these depositories allocated -- that is, specifically identified as belonging to the IMF -- or is it merged with other gold in storage at these depositories?"
Conny Lotze replied, still not very specifically: "The fund's gold is properly accounted for at all its depositories."

My fourth question was: "Do the IMF's member countries count the IMF's gold as part of their own national reserves, or do they count and identify the IMF's gold separately?"

Conny Lotze replied a bit ambiguously: "Members do not include IMF gold within their reserves because it is an asset of the IMF. Members include their reserve position in the fund in their international reserves."
This sounded to me as if the IMF members are still counting as their own the gold that supposedly belongs to the IMF -- that the IMF members are just listing the gold assets in another column on their own books.

My fifth question to the IMF was: "Does the IMF have assurances from the depositories that its gold is not leased or swapped or otherwise encumbered? If so, what are these assurances?"
Conny Lotze replied: "Under the fund's Articles of Agreement it is not authorized to engage in these transactions in gold."




But I had not asked if the IMF itself was swapping or leasing gold. I had asked whether the custodians of the IMF's gold were swapping or leasing it.

This prompted me to raise one more question for Conny Lotze. I wrote her: "Is there any audit of the IMF's gold that is available to the public? I ask because, if the amount of IMF gold held by each depository nation is not public information, there doesn't seem to be much documentation for the IMF's gold, nor any documentation for the assurance that its custody is just fine. Without any details or documentation, the IMF's answer see

And Conny Lotze ... well, that was 10 days ago, and she has not answered that question yet, and I don't think she is going to. For I'm beginning to find that the only thing that offends a government officer more than a four-letter word is that five-letter word: A-U-D-I-T.

That the International Monetary Fund apparently refuses to account for the gold it claims to have should be potential news for the financial media. We hope they will pursue that issue before they next attempt to scare the gold market with stories about IMF gold sales.

But GATA may have somewhat bigger news than that today.
Last week GATA's Washington law firm, William J. Olson P.C. of McLean, Virginia, received a letter from the Federal Reserve in response to the freedom-of-information request we sent to the Fed and the Treasury back in December, seeking access to all documents in their possession that mention "gold swaps." The Fed's letter confirms that it has such documents and says that some of them will be made available to us but others will not be made available or will be redacted because they contain, among other things, "trade secrets" and "privileged or confidential" memorandums or letters. By telephone the Fed has told our law firm that about 400 pages are being reviewed for release to us.

Right now we can only speculate about these documents, but the Fed's letter does admit something important: that the U.S. government knows things about gold that it does not want the public to know, that the U.S. government has secrets about gold, and that these secrets involve the gold market, not the mere location of U.S. government gold reserves.

Maybe the financial media should pursue these issues too. For what is there to hide about the U.S. gold reserves unless it involves market manipulation?

But since even Citigroup acknowledges it now, it should be no secret that the price of gold has been manipulated through the strategic dishoarding of gold by central banks and their sale of gold futures and options at strategic moments. So the biggest question of all may be why central banks manipulate the gold price and what this means for investors.

Gold has been manipulated by central banks because it is a currency that competes with their own currencies, a currency whose price helps set the price of government currencies and helps determine interest rates. More than that, gold is the ticket out of the central bank system, the escape from coercive central bank and government power. As an independent currency, a currency to which investors can resort when they are dissatisfied with government currencies, gold carries the enormous power to discipline governments, to call them to account for their inflation of the money supply and to warn the world against it. Because gold is the vehicle of escape from the central bank system, the manipulation of the gold market is the manipulation that makes possible all other market manipulation by government.
In recent months central bankers often have complained about what they call "imbalances" in the international financial system. That is, certain countries, particularly in Asia, run big trade surpluses, while other countries, especially the United States, run big trade deficits and consume far more than they produce, living off the rest of the world. These complaints by the central bankers about "imbalances" are brazenly hypocritical, since these imbalances have been caused by the central banks themselves, their constant interventions in the currency, bond, commodity, and derivatives markets to prevent those markets from coming into balance through ordinary market action lest certain political interests be disturbed.

Yes, when markets balance themselves they often do it brutally, causing great damage to many of their participants. The United States enacted a central banking system in 1913 because for the almost 150 years before then the country went through a catastrophic deflation every decade or so. Central banking was created in the name of preventing those catastrophic deflations.

The problem with central banking has been mainly the old problem of power -- it corrupts.
Central bankers are supposed to be more capable of restraint than ordinary politicians, and maybe some are, but they are not always or even often capable of the necessary restraint. One market intervention encourages another and another and increases the political pressure to keep intervening to benefit special interests rather than the general interest -- to benefit especially the financial interests, the banking and investment banking industries. These interventions, subsidies to special interests, increasingly are needed to prevent the previous imbalances from imploding.

And so we have come to an era of daily market interventions by central banks -- so much so that the main purpose of central banking now is to prevent ordinary markets from happening at all.
Central banking controls the value of all labor, services, and real goods, and yet it is conducted almost entirely in secret -- because, in choosing winners and losers in the economy, advancing infinite amounts of money to some participants in the markets but not to others, administering the ultimate patronage, central banking cannot survive scrutiny.

Yet the secrecy of central banking now is taken for granted even in nominally democratic countries.
Maybe the Federal Reserve's intervention to rescue Bear Stearns through the Fed's de-facto subsidiary, JPMorganChase, has been grotesque enough to prompt some devastating public inquiries by Congress and the news media. But what a hundred years ago in the United States was called the Money Power is so ascendant today that it sometimes even boasts of its privilege. What other agency of a democratic government could get away with the principle that was articulated on national television in 1994 by the vice chairman of the Federal Reserve, Alan Blinder? Blinder declared: "The last duty of a central banker is to tell the public the truth."

The truth as GATA sees it is this:
First, gold is the secret knowledge of the financial universe, but it is becoming an open secret. That is GATA's work -- to bust the secret open. We will continue to use freedom-of-information law against the Fed and the Treasury Department about their policies toward gold and the disposition of the U.S. gold reserves. Of course central banks can no more afford to account fully for their gold reserves than the Fed and JPMorganChase can afford to disclose details of their negotiations for the rescue of Bear Stearns. Indeed, the disposition of Western central bank gold reserves is a secret more closely guarded than the blueprints for the manufacture of nuclear weapons.

Second, all technical analysis of markets now is faulty if it fails to account for government intervention.
And third, that intervention against gold is failing because of overuse, exposure, exhaustion of Western central bank gold reserves -- we estimate that the Western central banks have in their vaults only about half the 32,000 tonnes they claim to have -- and the resentment of the developing world, which is starting to figure out how it has been expropriated by the dollar system, a system in which people create real goods and send them to the United States in exchange for mere colored paper and electrons.
The Western central banks are attempting a controlled retreat with gold, bleeding out their reserves so that gold's ascent and the dollar's decline may be less shocking. But GATA believes that the central banks may have to retreat farther than anyone dreams: that when the central banks are overrun in the gold market, as they were overrun in 1968, and the market begins to reflect the ratio between gold supply and the explosion of the world money supply of the last few decades -- as the market begins to perceive the difference between the real and the unreal -- there may not be enough zeroes to put behind the gold price.


Equities

Well although I still expect that the equity markets will test their recent lows, now we might go towards the 9,000 due to this new wonderful news coming from the banks.
Well anyway I still see the stock market rally as a sucker rally. The question in my opinion is rather if it is a short lived bear market rally or a long lived one. Why do I think so? Well, just based on the numbers, earnings are going to be terrible. By the way the market is actually expensive. Currently the Dow has a price earnings ratio of 31.25 which is extremely overvalued. Yes dear reader that might come as a surprise. Assuming that prices have fallen and therefore stocks must be cheap does not work because earnings have fallen faster than share prices with the effect that the PE ratios are now very high. It will be the first time a bull market starts at such a level. Well it is always the first time some time but it would surprise me completely if we really would enter a new bull market in equities because apart from having very high PE ratios, we probably are in for another 4 million job losses for the rest of 09. That will take the official US employment over 10% and the real figure will be more like double that, or 20% plus.



Well anyway, the positive side of this rally is that it permits all those investors who wanted to sell at higher prices to reduce their equity positions considerably over the next days or weeks.
Having that in mind not being invested in stocks might be a good idea.



Commodities

Gold declined 1.6% this week to $879 (down 0.4% y-t-d), and silver fell 3.1% to $12.34 (up 9% y-t-d). May Crude slipped 35 cents to $52.15 (up 17% y-t-d). May Gasoline dipped 0.7% (up 40% y-t-d), and May Natural Gas sank 5.0% (down 36% y-t-d). Copper jumped 3.7% (up 47% y-t-d). July Wheat dropped 7.3% (down 13% y-t-d), and July declined 3.6% (down 2% y-t-d). The CRB index dipped 0.5% (down 0.7% y-t-d). The Goldman Sachs Commodities Index (GSCI) gained 1.0% (up 8.6% y-t-d).

Water
Water Crisis Rocks LA, Mexico City; Who's Next?
Martin Sieff, United Press International (UPI)
Water, water hardly anywhere. Water crises are rocking two of the world's largest cities as Mexico City starts a 36-hour water cutoff and Los Angeles is in the midst of a water dearth.



The problem, however, is far wider than two of the most populous cities in the Western Hemisphere. Beijing, the capital of China, has a serious water shortage. The Israelis and the Palestinians are at loggerheads over control of the key aquifers west of the River Jordan that are vital to sustain both peoples. An unprecedented world population of 6.8 billion people -- more than three times that of 80 years ago -- and the inexorable reality of global climate change are guaranteed to make the long-term crisis worse.
http://www.upi.com/news/issueoftheday/2009/04/10/Water-crisis-rocks-LA-Mexico-City-whos-next/UPI-63621239376355/